Angel investors now set eyes on smaller towns startups

Many investors who have never explored the startup space before are looking for local platforms to invest in startups within their own ecosystem and beyond.Vasumita S Adarsh | ET Bureau | December 09, 2015, 09:35 IST

With a surfeit of money available, venturecapital funds are competing for seed deals, erasing long-held distinctions in the world of startup investing.Buzz around startups and high valuations have come to small town India with first generation entrepreneurs, high net-worth individuals and industrialists coming together to form angel groups in places such as Kanpur, Madurai, Hubballi, Jaipur and Chandigarh.

Many of these investors have never explored the startup space before, but are looking for local platforms to invest in startups within their own ecosystem and beyond.

Angel action has exploded in the last one year or so across smaller towns in India, according to Harshad Lahoti, founder and CEO of ah! Ventures.

“Almost all these towns have their share of wealthy individuals, who are seeing the rise of Flipkart or Ola and the rising valuations in the segment, prompting their own interest to invest in startups,” he said.

“We have been working in cities such as Jaipur, Kanpur and in Gujarat to help create an angel ecosystem and identify potential angels,” he said, adding that the ecosystem would help small-town startups access initial capital required for their venture.

Sivarajah Ramanathan, founder and CEO of Madurai-based Native Angel Network, said that in Madurai startup entrepreneurship has picked up in the last five years. “Earlier for those looking at entrepreneurship especially tech, Madurai had little to offer in terms of mentorship, networking or funding. And not all entrepreneurs are savvy enough to reach out to VCs and angels in the metros,” he said.

A first generation entrepreneur himself, Ramanathan started the Nativelead Foundation in 2012 with the help of HNIs in Madurai to encourage startups.

“We started the angel investing platform in 2014 to help startups with investments between Rs 10 lakh to Rs 50 lakh,” he said, adding that now the network has chapters in Trichy and Coimbatore as well, with 96 investors on board altogether.

“We have invested in two companies so far and aim to do at least 30 investments in 2016-17 in tier-II and III towns in Tamil Nadu,” said Ramanathan.

Kunal Gandhi, co-founder of Jaipur-based Logic Roots, said that even in 2011, there was interest from real estate developers and other industrialists to invest in startups.

“We declined investment from traditional investors, most of whom wanted to invest cash, as we were looking for organised startup funding. But awareness has since then increased and angel networks are being formed to especially support local startups,” he said.

Kanpur too is seeing its share of HNIs looking at startup activity as a potential investment opportunity. Manoj Agarwal, past president of TiE UP, has been actively working towards setting up an angel networking platform there.

“Traditional investors in Kanpur are taking interest in startups today though awareness and understanding of startup investment is still slow,” said Agarwal. “We are facing the challenge of explaining to investors that a Rs 50-lakh investment could fetch Rs 5-crore return or zero returns,” he added.

Aggarwal has already set up a Kanpur Angel Fund with the help of TiE and ah! Ventures. “This will be an independent organisation and we would leverage the networking platform of ah! Ventures and TiE,” he said.

Chandigarh is another city where a nascent angel network has made investments in startups in the city and elsewhere. “We noticed that startup activity has really picked up in Chandigarh in the past five years,” said Vineet Khurana, spokesperson for Chandigarh Angel Network (CAN), launched three months ago.

The network, which has 20 investors on board, has made investments in New Delhi-based Eckovation and Chandigarh-based Jumbo Basket.